SRH AlsterResearch AG Update: Rational AG - Weak results, challenging outlook

Please find attached the following research updates / initiation Rational AG (Update), Industrial Goods & Services MCap EUR 9.4bn; SELL, PT EUR 500.00 (downside 40%) Rational AG_update   Please note that AlsterResearch publishes MiFID II compliant research only. For a detailed discussion on MiFID II, please visit www.research-hub.de

Rational’s weak results persisted in Q4 2020 and overall 2020 performance disappointed, weighed by the global Corona crisis led demand slowdown. However, the results improved sequentially, including revenues and margins. The company will likely provide its detailed 2020 financial report and 2021 outlook on 24 March. Still, in our view, a pre-crisis margin level is not expected before 2023E.

Rational noted that inventory levels remained elevated at end of Q4 (flat qoq but up 20% yoy). The company is maintaining a higher-than-average stock for some key components to avoid supply-related disruptions. The group remarked it would decide whether to increase prices for combi-streamers. Conclusion: Rational’s weak results persisted in Q4 2020 and overall 2020 performance disappointed, weighed by the global Corona crisis led demand slowdown. However, the results improved sequentially, including revenues and margins. The company will likely provide its detailed 2020 financial report and 2021 outlook on 24 March. Still, in our view, a pre-crisis margin level is not expected before 2023E. Despite the fact that we like the quality of Rational’s business model (global market leader in its niche segment with market share >50%, impeccable balance sheet, large installed base of >600,000 combi-steamers as well as rising replacement sales), we maintain our SELL rating albeit with an increased price target of EUR 500 (old EUR 450.00).